Thursday, 26 March 2015

Wings clipped. Good

On Tuesday the ACCC said it was minded not to allow a proposed coordination agreement between Qantas and China Eastern on the Sydney-Shanghai route (media release here, full draft decision as a pdf here).

Good. It was hard to see how they could find otherwise as the likely detriments were large and the benefits (though real) small in comparison. As the Summary of the decision noted

Qantas and China Eastern had a combined share of capacity (seats flown) on the
Sydney – Shanghai route of 83% over the 12-month period from October 2013 to
September 2014

...the ACCC considers that Qantas and China Eastern are the major carriers
on the Sydney – Shanghai route and each other’s closest competitors. The competitive
constraint they impose on each other is likely to be lost if the Proposed Conduct
proceeds.

For these reasons the ACCC considers that the Proposed Conduct is likely to result in
significant public detriment. It is likely to give Qantas and China Eastern an increased
ability and incentive to unilaterally reduce capacity, or limit growth in capacity, relative to
that which would occur in the absence of the Proposed Conduct, thereby allowing the
Applicants to increase airfares on the Sydney – Shanghai route

The ACCC considers that the Proposed Conduct is likely to result in a range of public
benefits. However, the ACCC considers that the magnitude of these benefits is likely to
be limited.

The ACCC considers that on the Sydney – Shanghai route the extent of the reduction in
competition, and associated public detriment, is likely to be significant and outweigh any
benefits of the Proposed Conduct.

The airline industry, left to its own devices, can be too clubbable by half, and there's a very strong argument for regulators outside the industry, like the ACCC or the Commerce Commission, to be an arbiter of proposals like these: we need someone to take the pro-consumer, and not just the pro-industry, line. I don't know exactly what "regulatory approvals" Air New Zealand says it needs for its proposed coordination with Air China, but I hope they include our competition authority.

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